Much has changed since we last reviewed the ICAEW Business Confidence Monitor at the end of 2025. Businesses entered the year facing rising employment costs, inflationary pressures and uncertainty surrounding the Autumn Budget. Six months later, a fragile economic recovery has been further tested by geopolitical tensions in the Middle East and renewed volatility in global market.
The latest data from the ICAEW shows business confidence remains firmly below historical norms. However, organisations have continued to adapt, with trading performance holding up better than sentiment alone might suggest.
A tougher backdrop for business
While the national picture deteriorated sharply in Q2 following the outbreak of the Iran War, businesses in the East of England demonstrated greater resilience than many other regions. This was supported by steady sales growth and a relatively strong labour market.
The East of England’s Business Confidence Index improved from -18.5 at the end of 2025 to -8.8 in Q1 2026 before slipping back to -11.6 in Q2. Although still well below the long-term regional average, the region outperformed the UK-wide confidence score of -14.6 in the second quarter.
“Business confidence may be subdued, but that doesn’t mean businesses are standing still. Across the region we’re seeing organisations continue to invest, adapt and pursue growth opportunities despite a backdrop of economic and geopolitical uncertainty.”
Trading performance remains resilient
The first quarter brought encouraging signs. Domestic sales growth rose above historical norms, export performance improved and businesses reported easing input cost inflation. However, geopolitical events in the Middle East drove higher energy costs, supply chain disruption and renewed uncertainty during Q2.
Despite these headwinds, businesses in the East of England remain optimistic that sales growth will strengthen over the next twelve months. Although expectations are more measured than they were at the start of the year.
Caution returns to the boardroom
The challenges facing businesses evolved significantly across the six-month period. Energy costs rose sharply as a concern. Transport problems were reported more frequently in the East of England than anywhere else in the UK. This highlights the region’s exposure to international trade routes and major ports such as Felixstowe and Harwich.
The labour market has remained relatively resilient. Employment growth in the region rose from 1.0% in Q1 to 1.6% in Q2, outperforming the national average. Wage growth also remained elevated at 3.2%, with businesses expecting pay increases to continue above historical norms.
Are profits under pressure in the East of England?
Meanwhile, profitability remains under pressure. Although stronger sales have supported business activity, higher operating costs have constrained margins. Profits growth stood at just 2.3% in both quarters, below regional and national historical averages. Businesses nevertheless expect profitability to recover during the forthcoming year if sales growth strengthens and cost pressures begin to ease.
Has capital growth been impacted?
Perhaps the clearest sign of caution is businesses’ approach to investment. After a strong start to the year, firms have become increasingly reluctant to commit capital amid ongoing uncertainty. Capital investment growth slowed during Q2. Businesses expect only minimal growth over the next twelve months, significantly below national expectations. Research and development spending remains comparatively strong. However, investment intentions suggest many organisations are prioritising resilience and cash preservation until economic conditions become clearer.
Will a new PM affect the region?
The arrival of the Burnham government may create an opportunity for a fresh approach to economic policy. Should this be accompanied by measures that encourage business investment, improve productivity and provide greater certainty on taxation, there is reason to believe confidence could begin to recover during the remainder of the year. For now, and based on recent conversations I’ve had with owners and directors, businesses appear focused on maintaining flexibility while positioning themselves to take advantage of opportunities as conditions improve.
As always, feel free to get in touch to discuss these issues and how your business is navigating through these headwinds.
If you would like to know more about the findings, you can view the latest BCM 2026 Q2 report for the East of England on the ICAEW website.
Please note that this content is not intended to give specific technical advice. It is designed to highlight some of the key issues rather than provide an exhaustive explanation of the topics. Professional advice should always be sought before action is either taken or refrained from as a result of information contained herein.
